Rough sleepers encamped outside Flinders Street Station were offered accommodation at a motel on Tuesday afternoon as tensions between police and chanting protesters escalated.
At 1pm police told the media that they would start arresting people, including journalists, for obstructing the footpath.
On Tuesday, Housing Minister Martin Foley said the camp would have to be broken up, as the area would become a building site.
Media and the public crowded around the small group of protesters standing in front of about a dozen rough sleepers.
Some of the protesters became agitated, arguing about tactics, while the homeless people themselves mostly remained seated and quiet.
At about 12.45pm a spokeswoman from the Homeless Persons Union said police would "move in" within 20 minutes and that people had been offered a few days accommodation at the Coburg Motor Inn.
A Victoria Police spokesman said police formally approached those experiencing homelessness at about 12.30pm and asked them to relocate.
He said police were also monitoring the protest.
Earlier, at 11.30am, two dozen police arrived at the camp, followed by a large contingent of council workers wearing fluoro vests.
However they did not appear to approach the group of rough sleepers or their supporters, instead waiting a short distance away.
A small number of protesters yelled out slogans such as "homelessness is not a crime" and "shame Doyle shame" and "Melbourne city is for all".
A man who yelled at the group telling them to leave was taken away by police.
Mr Foley said 15 people from the camp had already been "successfully housed" while four others had been placed in drug and alcohol residential rehabilitation facilities.
"Since Friday the government has supported agencies to assist those at Flinders Street access housing and services," he said.
Public Transport Minister Jacinta Allan said scaffolding works had been "planned for months" as part of the station's $100 million upgrade.
"The project team has worked closely with Melbourne City Council and other agencies to keep those affected informed," she said.
The last remaining rough sleepers at the Flinders Street Station camp have been urged to accept a "pathway" out of homelessness or face eviction.
More to come.
With Nick Toscano and Benjamin Preiss